I just returned from yet another meeting with a personal lines insurance company where they told me they were considering pulling back or pulling out. It’s a depressing time in the hail belt for sure.
Simply put, insurance companies cannot raise rates fast enough to keep up with bad and continually worsening weather. No one has figured out how to stop roof replacement from destroying their balance sheets. And, these companies want to stay in business, so they’ve got to do something.
I think they can survive if they get aggressive about prosecuting roofer fraud, targeting their writings more broadly in terms of geography, continue raising rates and changing their policy forms to offer less coverage. But to survive they also need the help of their agency force. Here are my suggestions for companies:
- Limit roof coverage to 5% of the total dwelling limit. This constrains the risk and they can more accurately price for it.
- Charge a premium based on roof area. Technical solutions now exist to measure the area of every roof in the country with satellite imagery. Charge premiums based, in part, on roof area. This will target increase where they belong – on those with the most exposure. Consider, for example, a 2,000 square foot house built in 1980 and one built in 2005. The newer home probably has at least 50% more roof. Same premium. That’s nuts.
- Find some claimants who have been told by a roofer that they’ll cover the deductible and then go after them. This practice has to stop. If it raises the cost of a roof by 10% it probably adds a couple points to the combined ratio. Those couple of points may be the difference in survival – or not.
- Change policies to allow for repairs instead of replacement more easily.
- Educate the customer – at the time of purchase – about how claim inflaters like fraudulent roofing raise their costs.
- Offer discounts to customers for policies which require customers to use “approved” roofers.
Here are some suggestions for agents:
- Work to pass regulations for roofers requiring financial stability, disclosure, insurance, etc. to help weed out fly by storm roofers.
- Educate your customers on the cost of risk. Help them understand their true cost of claims so they can regulate their own behavior better at the time of loss.
- Counsel your customers about the advisability of filing claims. Obviously, we must follow state laws and always be ethical. But we all have customers who we know need to stop and think before they act.
- Work harder than ever to do a great job of field underwriting. What do I mean? I mean put your customers where they belong, not just where the cheapest premium is. This can make a dramatic impact on your non cat loss ratio in your agency.
- Encourage customers to stick with the carrier they have unless there is a good reason to move. A few dollars in premium is not a good reason. You do your customer a good service here because moving to the cheapest carrier every year will just result in cancellation, difficulty in rewriting, and ultimately higher premiums for the customer over time.
I’m sure there are lots of other good ideas out there. Please feel free to share with me! I’ll pass them along.